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PETER REX, FOUNDER AND CEO, REX
ON 3/16/23 AT 11:53 AM EDT
My company was a customer of Silicon Valley Bank. We had money in our account the day it imploded. Thankfully, we had less than the $250,000 insured by the federal government, so our money was safe no matter what Washington, D.C., did. We wouldn't have lost so much a cent.
But I'm still glad our leaders stepped in to protect all the bank's customers and make them whole, no matter how much they had in their accounts. Such decisive action surely prevented a broader collapse, protecting families, workers, and job creators nationwide.
I'm a firm believer in individual freedom and limited government, but the American banking system is fundamentally not a free market. The system we have is, and has long been, an invisible arm of the federal government. The United States has a vested interest in making sure people believe in banks and entrust them with their money. Without such trust, our economy would fall apart. There'd be less lending to families, less investment in promising start-ups, and less of the growth that lifts everyone, especially the least fortunate.
That trust was at risk of disappearing the moment Silicon Valley Bank, the country's 16th largest, collapsed. My fellow customers flocked to withdraw their money, creating a bank run that left it without enough cash on hand. We're lucky it happened on a Friday, giving the government a full weekend to reassure Americans. Had it happened earlier in the week, it's highly likely we would have seen a chain-reaction of similar bank runs nationwide.
Bank runs happen incredibly fast—in a matter of days or even hours, not weeks. They create a mob mentality, with customers of other banks wondering if they're at risk of losing their money, too. What started with Silicon Valley Bank could easily have spread to dozens, if not hundreds, of other financial institutions. It happened in the Great Depression. It could easily have happened on Monday morning.
But it didn't happen. When the federal government promised that all the bank's customers would get their full account balance, customers of every bank in America breathed a sigh of relief. They can still think their money is safe and their trust is well-placed.
I understand why many on the right are enraged by this turn of events. It's true that the Biden administration is violating basic free-market principles, and frankly, engaging in a sort of bailout. It's also true that supporting Silicon Valley Bank in particular looks like a political favor to the tech industry, which overwhelmingly supports liberal Democrats like the current president. But still, I think it was the right decision.
Better leaders than President Joe Biden have made similar moves in decades past. In the 1980s, one of my personal heroes, President Ronald Reagan, oversaw the federal rescue of Continental Illinois National Bank and Trust—the nation's 7th largest commercial bank at the time. Then, like now, many on the right accused Washington of giving a bailout. Yet the conservative's conservative pushed back. That was the correct call: A failure to act would have jeopardized the broader economy and tens of millions of families and workers.
Am I glad this happened? Of course not. It would have been better if Silicon Valley Bank hadn't collapsed in the first place. But I don't see a better option once the collapse became clear. It was the lesser of two evils, and yes, it creates perverse incentives going forward. But that doesn't change the fact that families and job creators are safer now than they were a few days ago. Taxpayers may still profit in the long run, and hopefully the bank's management will get punished for their foolishness.
Protecting my fellow Silicon Valley Bank customers didn't solve every problem in our economy. Far from it, as other banks' struggles now show. But the economy is stronger today than it was on the afternoon of Friday, March 10, when one of America's biggest banks fell apart. My company didn't need Washington to do what it did, but all of us are better off for the rescue of Silicon Valley Bank.
Peter Rex is founder of Rex, a technology, real estate, and investing company.
The views expressed in this article are the writer's own.
